Markit’s senior economist, Paul Smith, warned that the country is trapped in a vicious circle, as austerity measures choke demand out of the system. With unemployment rising and consumer spending, firms are reporting that they are struggling to access working capital.

Smith said:

Until this negative feedback loop is broken, it is hard to see the fortunes of the sector improving anytime soon.

9.03am: Manufacturing output across the eurozone also fell in January, for the sixth month running.

Markit’s overall PMI came in at 48.8, up from 46.9 in December — which means that the sector kept shrinking, but at a slower pace.

While Germany returned to growth (see 8.53am), the picture in Greece was dreadful.

Greek manufacturing output slumped to just 41 on Markit’s scale, down from 42 in December. New orders took a dive, and firms also reported that their work backlogs had also dropped.

8.53am: The first European manufacturing data is in — and it’s more more good news for Germany, and bad news for many other European countries.

The German manufacturing sector returned to growth in January, with a PMI of 51 (according to data from Markit). That’s a recovery from 48.4 in December, and means Germany’s manufacturing sector expanded for the first time since September.

But French and Italian manufacturing output both declined for the six month in a row.

France’s PMI dropped to 48.5 [a reading of 50 separates expansion from contraction] from 48.9. Italy’s rose from 46.8 from 44.3, indicating that its industrial sector kept shrinking but at a slower rate.

Spain’s manufacturing sector also shrunk again, but at a slower pace (with a PMI of 45.1, up from 43.7).

Switzerland and the Czech Republic also suffered another drop in manufacturing output.

8.37am: The early manufacturing data from China has pushed European shares higher in early trading, with the FTSE 100 jumping 60 points to 5743 (up 1.1%).

8.20am: The financial secretary of Hong Kong has warned that the global economy was facing a downturn worse than the 2008 financial meltdown.

John Tsang predicted that Hong Kong’s GDP could shrink in the current financial quarter, and blamed “unresolved economic troubles” in Europe and the US and the risk of turmoil in the financial markets.

Tsang said:

Despite our resilience, we will not lower our sense of crisis.

Even if Hong Kong GDP does shrink this quarter, it is still expected to post growth of between 1% and 3% this year. Many Western countries would take that!

8.05am: Manufacturing data from China has already been released – and the picture is murky.

The official data shows that China’s factory sector expanded slightly in January, defying economists’ predictions that it would shrink. Owners reported that new orders hit a three-month high.

The official Chinese PMI came in at 50.5 in January — slightly above the 50-point threshold which separates expansion from contraction. However, a rival unofficial survey from HSBC reckoned that activity fell.

A Chinese “hard landing” would push the world economy into deeper trouble, and analysts aren’t sure how the country ‘s central bankers will respond.